"Analyse and compare the gains predicted by economic theory from theremoval of (a) tariff barriers (b) non-tariff barriers wi

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“Analyse and compare the gains predicted by economic theory from the removal of (a) tariff barriers (b) non-tariff barriers within the Single European Market”

Autumn Term:  Vanessa Fry

EC 329 Economics of the European Union 2004

By: Partthepan Shivacanthan

BSc Economics

In this essay I have been asked to analyse and compare the gains predicted by the economic theory from the removal of tariff barriers and non-tariff barriers within the Single European Market. In order to answer this question we must first have an understanding of the history and the purpose of the Single European Market and why measures such as tariff and non-tariff barriers play a major role when talking about trade.

The creation of the European Union was seen as a major stepping stone towards creating a united “super power”; within which there was political harmony, economic stability and social co-operation between its member countries. The moves to complete the Single European Market (SEM) and the progress towards an economic union focused attention on the European Union; who was seen as a key player in the process of European   integration.

It all dates back to 1952, where the foundations were laid of a European Community when the Treaty of Paris created the European Coal and steel community (ECSC) whose objective was to withdraw the French and German basic industries from the national authority and place them under a European High Authority. The sectoral limitations of the ECSC were felt to be a serious practical handicap and a greater integration was aimed at. This was achieved in 1958 when the European Community (EC) was created by the Treaty of Rome which commits its original member countries (Belgium, France, Italy, Luxembourg, Netherlands and Germany) in establishing a single market (also known as Common Market) in order to create an economy within which member countries can experience remarkable gains from trade as well as being able to compete with the likes of United States and countries such as Japan in Asia.

The move to establish a Single European Market (SEM) was simply a programme to enable the EU to create a single market. As said before the EU has been committed to establishing the common market since the treaty of Rome was signed in 1957.  Before agreement was reached to establish the market by the end of 1992, there had been little progress in creating this. The main problem being the difficulty in reaching an agreement about eliminating many non tariff barriers (NTBs’) based on diverse national rules, regulations, taxation and subsidies   which hindered free movement of goods, services, capital and labour (known as the “Four Freedoms”) between the member countries. This could only be achieved through the removal of barriers that prohibited the movement of the factors mentioned above.  

In the end, the creation of the single market was achieved and came into force on the first of January 1993. The free movements of the four freedom factors became an important principle of the European Single Market. It should be noted that it nearly took 40 years for the European Union to reach an agreement to create the market hindered by the barriers. With the removal of the trade barriers and creation of the single market the main objective of the EU was to “enhance the allocation efficiency of the economic member countries by removing barriers to goods, services and factors of production. This would mean a fully integrated goods market between the member countries with the aim for free international trade; with potential economic advantages such as more production and prosperity through better allocation of each production factors,  enabling each country to specialise in the production for which it has comparative advantage. Coupled with more efficient production due to scale economies, better competition and improved terms of trade for the whole group in respect of the rest of the world.

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As said before integration of market implies first of all the removal of impediments to free trade of goods. Keeping this in mind it is important to establish what these trade barriers are.

First of all we got the tariff barrier also known as the customs duties or import duties which are sums levied on imports of goods, making them more expensive on the international market.  Levies such as these are based on value or quantity. They may be in fixed percentages or variable amounts according to the price level aspired to domestically. Types of such levies are import levies ...

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